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Emma Sjöström, Ulf Erlandsson
Policy brief
Climate, Finance

SSFC Insights

The Bond Market: Its Relevance And Functionality For The Climate Transition

Joint work: Stockholm Sustainable Finance Centre and Anthropocene Fixed Income Institute

The bond market is often sidelined in comparison with the equity market with regard to questions related to climate change and sustainability. This could be seen as surprising given that the global bond market is twice the size of the equity market. This SSFC insight on the bond market shows that there are obvious links to the climate and that there is considerable potential for investors to use their bond mandates to contribute positively to climate change-related investments.

A growing number of financial market participants include climate change as a decisive factor in their asset management decisions. For example, the investor initiative Climate Action 100+ has seen an annual increase in subscribing institutions of 65 per cent since its launch in 2016 (Climate Action 100+, 2020). There are several explanations for this, from attempts to protect the portfolio against financial risks to trying to contribute to climate change mitigation.

The purpose of this report is to explain and highlight the importance and functionality of the bond market for investing that can have an impact on climate change. It presents ways for investors to use bond market mechanisms to include climate perspectives and to push the agenda in this area. It also suggests topics for further investigation in future research.